Downward spiral

Created by lack of demand..

U.S. Facing Massive Job Losses
Monday, 08 Aug 2011 11:07 AM
By Michelle Smith

At a time when the American public and global investors are desperate for any sign of economic growth, major U.S.-based companies are eliminating tens of thousands of jobs.

Outplacement firm Challenger, Gray & Christmas is forecasting a loss of 66,414 jobs in coming months.

Companies are shedding jobs for different reasons. Borders, for example, is closing all of its remaining stores, which will put nearly 11,000 people out of work. Lockheed Martin reportedly blames its release of thousands of employees on government spending cuts and a weak economy.

According to a Los Angeles Times article published Aug. 8, many companies are “beginning to give up on the American consumer as a source of future growth.”

The paper says the largest layoff actions last month were accompanied by disclosures that the same companies planned to ramp up their operations — including hiring — in emerging economies.

Merck is one such company. The pharmaceutical giant plans to cut 13 percent of its workforce — or roughly 12,000 to 13,000 jobs — by 2015, according to CNN Money. And between 35 percent and 40 percent of the job cuts will be in the United States. Yet, the company will continue to hire new employees to build the company’s presence in emerging markets like China and Brazil.

In addition to the attractive consumer bases abroad, the Los Angeles Times also notes that the U.S. tax system creates very real financial incentives for companies that cut jobs here and replace them with foreign positions. These corporations are earning larger portions of their income abroad, and that money will be heavily taxed if they bring it back home.

Basically, it just makes sense for many companies to use the money where they earn it.

This could result in a self-perpetuating cycle that stifles job creation in the U.S. over the long term. There are already growing middle classes in emerging nations with money to burn. The more jobs that they’re fed, the more money they’ll have, and the more incentive corporations will have to prioritize targeting them. On the contrary, the lack of jobs in the U.S. means consumers will have tighter budgets and will likely be more hesitant to splurge.

“In effect, as many corporate executives look ahead, the United States has a diminishing place in their thinking,” concludes the Los Angeles Times.